BlockFi, a crypto lending company that filed for bankruptcy in November 2022, had approximately $1.2 billion worth of assets connected to FTX and Alameda Research. According to a filing made on July 14th with the United States Bankruptcy Court, the CEO of BlockFi, Zac Prince, allegedly ignored warnings from the company’s risk management team about lending assets to Alameda Research.
The risk management team had expressed concerns about the high risks involved in lending assets to Alameda. Prince reportedly dismissed these concerns when BlockFi lent $217 million to Alameda by August 2021. The team had warned about potential risks if the FTX Tokens used as collateral for the loans needed to be liquidated.
The filing stated that as early as August 2021, BlockFi’s risk management team was informed that Alameda had a significant amount of unlocked FTT tokens on its balance sheet, raising alarms at BlockFi. However, Prince disregarded these concerns and urged the risk team to become comfortable with Alameda’s borrowing size, comparing it to a well-known borrower called “three arrows.”
After January 2022, the risk management team stopped sending memos to Prince about the risks associated with lending to Alameda, and discussions were moved to offline meetings and Slack. The CEO occasionally acknowledged the exposure in these discussions. At the time of filing for bankruptcy, BlockFi had about $1.2 billion tied to FTX and Alameda.
In November 2022, when BlockFi filed for Chapter 11 bankruptcy, it revealed significant exposure to FTX and its associated entities. In July 2022, FTX US received a $400 million credit line from BlockFi, further strengthening the financial ties between the two companies during a period known as the crypto winter.
According to the report, BlockFi recalled its loans from Alameda in June 2022, and Alameda repaid most of its outstanding balance. However, BlockFi chose to re-lend nearly $900 million to Alameda between July and September 2022, with the loans primarily collateralized by FTT tokens.
The filing emphasized that while Alameda/FTX’s downfall may have triggered BlockFi’s bankruptcy, the underlying reasons for BlockFi’s demise were rooted in its own business practices and decisions that preceded the bankruptcy filing of Alameda/FTX.
BlockFi disputed the report and disagreed with its findings. The company claimed in a separate court filing that the committee behind the report cherry-picked statements out of context made errors on other matters, and did not provide the promised objective analysis.
BlockFi explicitly cited exposure to FTX as one of the factors leading to its bankruptcy filing. FTX’s practice of collateralized loans based on FTT tokens resulted in numerous firms suffering losses when the token’s price plummeted from over $25 to under $2 during the Chapter 11 filing and reported liquidity issues.